College Payoff: Finanical Aid Dos and Don’ts

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KENT-- Have you considered co-signing a private student loan for one or more of your children? Most parents wouldn't think twice about it, yet one local financial planner said they would be making a big mistake.

That was the suspicion and concern of 21-year-old Candace Monacelli, who`s working toward a degree in Broadcast Journalism at Kent State University while also studying meteorology online.

Like a lot of undergraduates at KSU, Candace couldn`t afford to pay nearly $10,000 a year in tuition. She hoped to cover the bill using grants and scholarships, but said it didn`t work out for her.

"My family is such middle class that I rarely got money,' she said.

Candace said the only way she could pay for college was to apply for a private bank loan. The problem was Candace`s age. The bank wouldn't lend her money unless her parents agreed to co-sign; a demand that worried the teen.

"So it's a fear of, okay, what am I going to do if I graduate and you don't get a job," she said, explaining her fears about not being able to repay the loan herself.

Matt Olver, a certified financial planner from Spero Smith, a fee-based investment advisory firm in Beachwood, said Candace was right to be concerned.

He said co-signing on a student loan can get a parent in a lot of financial trouble.

"It is a joint debt, it's not just the student's,' said Olver, 'And you're kind of a backstop, it is your debt as well, since day one, that loan balance is going to go on to your credit report."

Olver said that could make it difficult, if not impossible, for a parent to qualify for a new house or car until the student loan is paid off—and it gets worse.

"If the creditor comes after you and sues you for that loan balance, all kinds of assets can be seized or assessed," he said.

Olver said no parent can predict the future employment of a child, who years from now, might be unable to repay their student loans when mom and dad are retired.

"So here they are, responsible for a debt, that they no longer have the income, and it can dramatically affect their own retirement and ability to live the life that they want to live and have that freedom and independence in retirement,' said Olver.

Fortunately, Candace and her parents didn't wait for graduation day to tackle their private student loan. Candace got a part time job and together, paid it off with the help of her parents.